The Great Depression A Lesson To Be Learned

The Great Depression started in 1929 and didn’t end until the 1940’s. Why did it last so long? Was it a failure of the free enterprise system or was it caused by government regulation?  The truth appears to have been the second. Government regulation…

When the Great Depression started in 1929, President Herbert Hoover believed that it was due to a collapse of economic demand. That people didn’t earn enough to buy up the supposed “glut” of products for sale. That the economy had actually “locked up” and it would take the power of government to break it free. The way President Hoover decided to use was to prohibit business from reducing the wages and salaries of those employed. Thus, even if a business wanted to, they couldn’t adjust their labor costs to reflect the change in economic conditions. Business couldn’t readjust its labor costs to reflect the lower demand caused by the economic contraction. If a business couldn’t adjust its labor costs, it had no alternative but to lay people off. Which of course made things even worse than before. Laid off people didn’t have the money to buy anything except what they absolutely had to buy, and even then, people had to skimp as much as they could since increasing lay offs meant greater competition for whatever jobs still existed. But the federal government had effectively made it so that business could not cut wages. You could lay people off, but you had to continue to pay those still in your employ their established wages even if that meant losing money because of less sales for whatever goods and services were produced. You could say that the federal government had imposed upon business a “minimum wage” which required employers to pay the same wages they’d been paying when things were good. The effect was to effectively kill the hopes of anyone laid off from being employed because you had to supposedly pay the same wages as you were now paying your other employees even if the new hire was actually willing to work for less money to learn the job. I suppose the idea was that this would prevent an employer from laying off workers, then rehiring them back at a lower wage. Just how well all of this was enforced is hard to say, but it certainly did make it difficult for employers to stay in business as you might guess.*

* Our leaders believe that raising the minimum wage is a good idea even if there is a lot of unemployment and people are having a hard time finding jobs. Looks like we haven’t yet learned the “lessons” that the Great Depression taught us.  Is Obama another Hoover?

The result was of course that things grow progressively worse with time. Hoover got voted out in favor of Roosevelt. FDR felt that “price supports” were necessary so that businesses could receive enough profits to stay in business. Of course as many people were losing their jobs and trying to survive as best they could, keeping prices high only made things worse… Under the Roosevelt administration the government sent out agents to check businesses to see that they weren’t reducing prices or having sales. That was a violation of the National Recovery Act if I recall correctly. The Supreme Court overturned it, but Roosevelt then threatened to “pack” the Court, which greatly discouraged the justices from forbidding FDR from doing what he wanted. There were price supports on agricultural products, which mainly made food more expensive when people were having a hard time trying to avoid starving to death. We still have those price supports on agricultural products today. Supposedly this is to preserve the “family farm”, but most farming today is done by large “industrial” farms, much different from the supposed “family farm” we’re trying to “save”.

Of course FDR did try to have the government provide jobs since government regulations made it rather difficult for private business to do so. We had the “Works Progress” administration which used taxpayer money to pay unemployed people to do work. Much of this work was “useful” (there were no labor unions to oppose it) and it did help somewhat. No doubt the government could hire people to do similar work today, but organized labor would certainly protest the idea. With a growing government deficit, FDR decided to raise taxes, which discouraged investors and tended to cost what precious jobs business had managed to create. It wasn’t until the US started spending major amounts of money on national defense (Pearl Harbor) that the US economy eventually climbed out of the Great Depression.

I think that we should learn from this that excessive government regulation costs jobs and hinders economic growth. There are enough studies of the Great Depression to leave no doubt as what we shouldn’t be doing today…

 

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About muskegonlibertarian

77 year old retired owner of a security guard agency. Member of the Libertarian Party.
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